Google stock is ‘screamingly cheap’ — and it could get cheaper, analyst says

Independent Wealth Solutions Management Paul Meeks joins Yahoo Finance Live to discuss tech earnings and how they are weighing on markets, macro headwinds, investing in the tech space, post-COVID PC demand, and the outlook for Meta.

Video Transcript

JULIE HYMAN: Let's get a bigger view on what's going on in technology now and continue the conversation on the tech space in this morning's earnings with Independent Solutions Wealth Management Portfolio Manager Paul Meeks. Paul, good morning. It's good to see you. Are these companies, by and large, less resilient than you thought that they might be?

PAUL MEEKS: I actually expected them to get dinged by the macro as one of the things that you have to remember, particularly with the social media-oriented companies, their digital advertising models, and even if they have big slices of market share in that space, the pie is shrinking. And so when you take a look at Meta and Alphabet, I thought Alphabet, given the fact that it's not going through a wrenching business model change like Meta is, would be more resilient, but man, the results that even Alphabet reported last night did chill me a little bit.

BRAD SMITH: Paul, you said in your notes to us that you're only investing in the dogs with the fewest fleas out there. So what do you mean by that, especially right now given some of the macro headwinds that companies have continued to cite, especially within tech, over the course of this earnings period?

PAUL MEEKS: Yeah. So what I mean by that is I'm best known to be a tech investor. People don't hire me to invest in Procter & Gamble. But of course, I'm not naive enough to know that my sector could be out of favor and it could be out of favor for long stretches, and we're actually in one of those stretches. So I don't want to force feed anything.

So my portfolios, I have very large cash and I've been that way since Thanksgiving of last year. And when I say that dogs with the fewest fleas, I don't want to sound like I'm being cavalier, but I'm looking for companies that can actually grow their revenue and earnings despite a recession. When they report said numbers, they are beating the numbers and they still have maybe not great valuations, but reasonable valuations. And quite often these are companies that are much smaller capped than the FAANGs that are under the radar that I find at least some semblance of value.

BRIAN SOZZI: Paul, you mentioned that the Alphabet report gave you chills. What do you need to be ultimately seeing over the next couple of quarters to become unchilly? When do we see things getting better for Alphabet?

PAUL MEEKS: Yeah. I don't think that we can actually say with any confidence. I need to invest with confidence that we have seen the last downgrade in quarterly revenue and earnings per share estimates for that company. And so regardless of the fact that it's in some measures, at least according to its history, it's screamingly cheap. We cannot rally or we cannot rally consistently until we get a bottom in the numbers.

And I don't know if that's the next quarter. I don't know if that's the next quarter after that. So what I need to see is a bottom in the estimates, no more downgrades, and maybe even if the company continues to report bad news, maybe a rally despite the bad news. Those would be two very good tells, not just to get back into Alphabet, but the other large cap tech names.

JULIE HYMAN: Paul, you know, you've been through other tech cycles, right? How does this compare, do you think, how is it going to compare? And are we going to see fallout where we're going to see some companies go away or maybe some of the smaller players get snapped up?

PAUL MEEKS: I actually think that some of the tech companies, or tech-ish companies, or tech-related companies that essentially were brought to the dance only because they were COVID plays may not have another growth leg post-COVID and we're seeing a collapse in some of those. So I think some of those will actually go bust.

But I've been around a long time, through lots of cycles, particularly when the internet bubble popped in the early part of this century and back then we had a lot of companies that were actually fraudulent. Where they didn't really have sustainable business models even on a good day. And so I don't expect to see the carnage in technology anything this time as bad as that was.

BRAD SMITH: What's the new normalization for companies who have relied on PC demand for so long and are now seeing the long tail of PC start to wither here?

PAUL MEEKS: Yeah, that's the problem because we did get a bit of a respite with big PC demand during COVID for the obvious reason, everybody going remote. But remember, the last couple of years before the pandemic, the PC market sucked, right? It is a '80s and 19-- you know, 1990s technology.

It was absolutely mature, not just in the United States, but all around the world. And so it was growing very slowly, it was actually declining. So unfortunately, post-COVID, I think we get back to that. And you don't want to be a company that is solely reliant on a reacceleration of PC demand because I just don't see it, even when the economy comes back.

JULIE HYMAN: Paul, I want to ask you about one more company and that's Meta. I believe one of the other times we talked to you, you said it was your least favorite among the large cap tech space. What are the earnings that we got late yesterday tell you about how Meta might do?

PAUL MEEKS: Yeah, it's going to be bad, but the problem with Meta, maybe the opportunity in Meta, is that the stock is so oversold, maybe we're pleasantly surprised. We won't be pleasantly surprised by the fundamentals. They will be poor, but the stock is also reflecting a lot, right, because it's so dramatically underperformed the rest of the group, even other digital advertising stories. But man, I would not buy that before the report tonight. Way too dicey. Stock could go down even further.

JULIE HYMAN: We shall see. Paul, always good to get some time with you, especially on a day like this when there are so many tech earnings to consider. Independent Wealth Solutions Management's Paul Meeks. Thank you again.